Mercedes Falling behind Competitors Despite Strategy Changes

Strategy Stalls:Daimler Struggles to Regain Its Spark

Zetsche now has a new plan. Last year, he presented his "Mercedes-Benz 2020" strategy, which he intends to use to return the brand to its leading position by the beginning of the next decade.

This calls for a wider range of models. Instead of two, there will be five models in the A-Class and the B-Class, including coupés, convertibles and SUVs. The new S-Class, which will be launched on the market next year, will be available in five models. Furthermore, Mercedes is investing in improved features for its vehicles, and in higher quality.

Initial results can already be seen. Quality has improved and the new A-Class has a sleek, contemporary design. If no serious mistakes are made, Zetsche says, Mercedes will definitely sell more vehicles. "Sales volume is also a reflection of competitiveness," Zetsche says, which is why Mercedes has to sell "more cars than its competitors."

That's the objective, in any case. The fact that the Daimler boss has to warn of declining profits now raises doubts about whether the goals of the Mercedes-Benz 2020 project can realistically be met.

Zetsche wants everything -- and he wants it all at once: more investments in new models and alternative drive systems, and higher profits. That's difficult to achieve in one fell swoop. In the automotive industry, the groundwork has to be done first, and success only comes later.

Important projects have already run into difficulties. In addition to gasoline and diesel engines, the new B-Class was originally supposed to be launched on the market with four alternative drive systems. But now there will only be natural gas and electric models. The other alternative drive systems are not yet ready for production, or simply too expensive. This has sparked criticism of Thomas Weber, the board member responsible for the carmaker's R&D department.

It will also be more expensive than expected to upgrade many models. The company has redesigned the doors and front end of the E-Class and redone the interior. Engines and transmissions have been modernized for the C-Class. Mercedes is spending a total of 800 million in 2012 to improve its vehicles before the next change of models. This enhances the cars' quality and features, but it also drives up costs.

Short on Alternatives

Mercedes executives say it was clear right from the start that the 2012 profit objectives could not be met. They say that Zetsche has placed the bar too high in an effort to calm investors. Now, they contend that he will have to go back on his promises.

There is hardly an executive in the company who is willing to openly criticize the CEO. One Daimler manager says that the head of the company is reacting to objections with an increasing degree of irritation. When approximately 120 managers met at the five-star Interalpen Hotel Tyrol, in Austria, on July 10 and 11, there were hardly any critical questions directed at the CEO. Instead, participants discussed contentious issues among themselves at the bar at night.

CFO Bodo Uebber would immediately take the helm at Daimler if it were offered to him. But Uebber is hardly in a position to attempt a coup, especially since Manfred Bischoff, the chairman of the supervisory board, has already told him that he currently has no chance of becoming CEO.

Wolfgang Bernhard, the board member responsible for manufacturing and procurement, has already had to leave Daimler once for openly voicing his opinions on Mercedes' need for restructuring. After spending an interim period on the VW board of directors, Bernhard returned to Daimler in 2009. Since then, he has completely refrained from airing any criticism. Worker representatives on the supervisory board see Bernhard as a board member with an uncertain future -- and not a candidate for running the company.

Likewise, there are no external candidates in sight for the top position at Daimler. So this leaves just one individual: Zetsche. Leading representatives of shareholders and workers on the Daimler supervisory board have told SPIEGEL that Zetsche's contract is to be extended by three years, until the end of 2016. They also claim that this is not a stop-gap solution, saying that they have faith in Zetsche -- and that Daimler is on the right course.

One could also see the company's situation in an entirely different light. Although the company is doing poorly in comparison to BMW, it appears to be doing very well when viewed on its own. Daimler had a record year in 2011: Mercedes has never sold so many cars and never had such large profits: 5.2 billion.

This year, the car division's profits may be falling, but they are rising in the truck division, which is doing extremely well. All in all, it looks like the company will produce the same results as last year.

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The article you are reading originally appeared in German in issue 39/2012 (September 24, 2012) of DER SPIEGEL.

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